Verizon reverses loss, wireless surges

WASHINGTON (CBS.MW) -- Saddled with $1.6 billion in onetime costs, Verizon Communications on Tuesday posted a small second-quarter profit, though its wireless unit turned in another exceptional performance.

The company said it earned $338 million, or 12 cents a share, in the latest quarter, reversing a net loss of $2.1 billion, or 78 cents. Sales rose to $16.83 billion from $16.51 billion, and it was up from $16.3 billion in the first quarter.

By comparison, the unit added 833,000 subscribers in the first quarter. Churn -- the rate at which new customers leave -- fell to a low 1.7 percent. Average monthly revenue per user totaled $49, up from $47 in the first quarter.

Verizon Wireless now has a nation-leading total of 34.6 million users.

The 14.3 percent increase in wireless revenue helped to offset another decline in the company's mainstay local-phone business. That enabled the carrier to nudge total revenue 0.5 percent higher - a 2 percent gain when sold operations are excluded from results.

The company left its 2002 financial forecast unchanged, though it said it plans to eliminate up to an additional $4 billion in long-term debt and bring its total to as low as $46 billion.

Later in the day, Verizon officials said during a conference call that the phone company will cut between 4,000 and 5,000 jobs in the second half of the year. The reductions will be made through a combination of layoffs, buyouts, early retirement and attrition.

MCI settlement

Also on Tuesday, a U.S. Bankruptcy Court approved a deal in which bankrupt WorldCom, now known as MCI, will pay Verizon $60 million to settle a dispute over millions of dollars in fees from calls, billing and collection agreements. Meanwhile, MCI said Tuesday it has hired a law firm to investigate charges that it cheated rivals out of hundreds of millions of dollars in fees. See full story.

Strike pending?

Verizon posted results just days before the Aug. 2 expiration of a contract with 78,000 unionized workers in the Northeast. Both sides could be gearing up for a replay of the 18-day strike that preceded the last contract agreement three years ago.

Facing pressure to cuts costs because of stiff competition and tepid demand, Verizon wants the union to bear a greater share of health costs and to reduce absenteeism, while letting the company shift more jobs to other locations.

Workers are balking at higher payments for health care and want greater job security. They are also resisting the company's effort to expand the non-unionized portion of its workforce, especially in the fast-growing wireless business.

Government mediators have opened talks between Verizon officials and union representatives, the Associated Press reported late Tuesday.

Verizon said Tuesday that it has "contingency plans in place" in case of a strike.

Other results

Verizon added 1.4 long-distance phone lines -- doubling its growth from the prior quarter -- to bring its total to 14.6 million. The company is now the nation's third-largest supplier of consumer long-distance service.

Long-distance revenue rose 17.2 percent to $901 million from $769 million a year ago. In the first quarter, sales totaled $881 million.

Yet local revenue dropped 4.1 percent to $4.9 billion from $5.1 billion a year earlier. Sales did not decline from the first quarter, however.

Like other Baby Bells, Verizon continues to lose local lines to rivals such as AT&T
T, -1.25%
and to alternative services such as wireless. Local lines in service dropped 3.7 percent to 56.76 million.

To stanch those losses, Verizon and its rivals have stepped up efforts to sell "bundles" to customers. Bundles consist of a variety of communications services -- local, long-distance, Internet, wireless - at ostensibly discounted prices. (Such packages tend to benefit heavy callers the most. See full story.)

The company's high-speed Internet service, known as DSL, gained 101,000 lines for a total of 1.9 million. Yet that fell below first-quarter growth of 160,000.

DSL is expected to be one of Verizon's main growth engines in the future, but rivals such as SBC Communications have done a better job of signing up customers.

Earlier this month, Verizon announced it would take $1.6 billion in charges during the second quarter.

Onetime costs involved severance payments to laid-off workers, the early retirement of debt and the sale of its stake in Mexican carrier Grupo Iusacell. See full story.

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